Theories about the origins of money, one of the most impactful and transformative inventions in human history, have long sparked debates. A recent study by Mikael Fauvelle, a Swedish archaeologist at Lund University, presents a firm and distinctive viewpoint, namely that money was created primarily for facilitating inter-regional trade between strangers, rather than for collecting taxes (as those who credit the creation of money to the state claim).
Fauvelle’s study, published in the Journal of Archaeological Method and Theory, concludes that money in its most ancient forms evolved as a tool to ease trade between individuals separated by cultural barriers—an idea he refers to as the "trade theory of money."
The Two Dominant Theories of Money
For many years, two principal theories have shaped the conversation about the origins of money.
The first is the “money as commodity” theory, which suggests that money emerged as a response to the inefficiencies inherent in bartering. In barter economies, people had to find others who not only desired what they offered but also had something the first person wanted in return. This "double coincidence of wants" was not always guaranteed, and could create difficulties in completing exchanges.
- From Barter to Bitcoins: The 5,000 Year History of Money
- Paying With Shells: Cowrie Shell Money Is One of the Oldest Currencies Still Collected Today
The great Greek philosopher Aristotle supported this theory, which eventually became popular with economists in later eras. They argued that materials that were durable, valuable, and practical—such as
precious metals, like gold and silver—naturally evolved into money because they were prized across generations and in all societies.
The second theory, known as "chartalism" or "money as credit," posits that money was first created by ancient governments as a means of standardizing tax payments and tributes. Under this theory, rulers are believed to have established currency systems, assigning specific values to coins and notes. Prominent thinkers such as Georg Friedrich Knapp and David Graeber have emphasized the role of state authority in the creation of money, based on their historical study of how states were able to build grand monuments or launch ambitious wars of invasion.
15th century painting by Masaccio called ‘Coin in the Fish’s Mouth,’ portraying Roman tax collectors exacting tributes from Jesus and his followers. (Public Domain).
However, both theories face their share of criticism. For example, historians have found little evidence of societies that relied exclusively on barter, leading some to label the "money as commodity" theory as the "myth of barter." Similarly, critics of the chartalist theory argue that it downplays the crucial role trade and social networks played in the development and proliferation of monetary systems.
Money as a Solution for Long-Distance Exchange
Fauvelle offers a new perspective that blends aspects of both theories. He suggests that money didn’t solely emerge in small, close-knit communities or from governmental control mechanisms. Instead, it became popular because it offered a practical solution to problems created by the growing need for economic integration between distant regions that often spoke different languages or had differing cultures. In such circumstances, the introduction of money would have been been logical and even essential.
- Metal Fragments Found To Be Currency In Bronze Age Europe
- Did the Yuan Dynasty's Use of Paper Money Cause Hyperinflation?
“Recently, skepticism over the existence of barter economies in either contemporary societies or ancient history has led to the increased popularity of the state-centric chartalist approach,” Fauvelle noted in his journal article. “Evidence from many pre-state societies around the world, however, shows that commodity money was often used in long-distance trade networks where systems of debt and reciprocity would have been impractical… I suggest that the commodity theory of money is more accurately explained by the importance of exchange in external rather than internal economic systems.”
Fauvelle’s study draws upon archaeological evidence from sites connected to two ancient sources: pre-Columbian North America and Europe during the Bronze Age (approximately 2,500 to 750 BC).
In support of his thesis, Fauvelle points to developments in pre-European California, where Native American communities, some separated by notable distances, used shell beads as a form of currency for over a millennium. These beads, crafted on the Channel Islands, were lightweight, easily transportable, and widely accepted for purchasing a variety of goods and services. The beads' high value and ease of use made them particularly valuable for facilitating trade across culturally distinct regions.
In Europe, during the Bronze Age, extensive trade networks connected Scandinavia to the Mediterranean , with further interconnections developing at all points in-betweed. Bronze items such as ingots, rings, and axes were standardized by weight and circulated widely as currency. Fauvelle notes that these items functioned in much the same way as modern money, enabling transactions between far-flung markets and minimizing disputes by ensuring uniform standards of value.
The study underscores that the role of money extended beyond its economic function. In both California and Bronze Age Europe, shell beads and bronze items also had social significance. They were used in rituals, as status symbols, and for settling debts—indicating that early monetary systems were linked to other cultural and even spiritual practices. In some societies, money was likely even seen as “sacred.”
Across Time and Space, Money Makes the World Go Round
Fauvelle concludes that money likely developed independently in different regions, serving distinct purposes. While in some cases it was introduced by state authorities, in others it emerged organically as a practical solution to the challenges posed by long-distance trade, with the latter pathway being the most commonly traveled.
Hoard of ancient Greek coins from the fourth century BC, held by the Izmir Archaeology Museum in Greece.(Dosseman/CC BY-SA 4.0).
“Through the use of money, ancient societies were able to acquire resources on a greater scale and over a larger area than would have been otherwise possible,” Fauvelle concluded in his journal article. “The innovation of money is thus one of the catalyzing factors that helped facilitate the formation of ancient world systems in both North America and Europe.”
Money remains one of the fundamental unifying factors in global society. Of course nowadays money is created out of thin air by banks rather than by state actors or private individuals, and comes with interest charges attached from the beginning, making it possible for lenders to actually make money off of money itself. But the history of banking and usury is a topic for another day.
Top image: Display of various items that were used as forms of money by past civilizations, from the RBI Museum in Kolkata, India.
Source: Rangan Datta Wiki/CC BY-SA 4.0.
By Nathan Falde
